YES Bank: Recommendation Review

We had recommended YES Bank to investors in DSIJ Vol. 27, Issue No. 23 (dated November 4, 2012), when it was trading at Rs 381. We had recommended the scrip as it was available at a fair valuation, coupled with factors like stable margins and decent business growth. Further, the asset quality of the bank is the best in the banking industry.

After our recommendation, the scrip moved higher. which resulted in good capital appreciation for investors. Now, after analysing the results for the December 2012 quarter, we recommend booking profits in the scrip at the CMP of Rs 509, which will result in capital appreciation of 34 per cent in just three months’ time.

In the December 2012 quarter, the Net Interest Income (NII) of the bank increased by 36 per cent to Rs 584 crore while its Net Profit increased by 34 per cent to Rs 342 crore. The Net Interest Margin (NIM) also improved by 20 basis points to three per cent on a YoY basis and by 10 basis points sequentially. Further, the asset quality of the bank strengthened, with the Gross and Net NPAs decreasing by 6 and 1 basis points to 0.17 per cent and 0.04 per cent respectively on a sequential basis.

We are of the opinion that investors were already expecting a good set of numbers from YES Bank and hence, the December 2012 quarter results were already priced in. On the valuations front, the bank is currently trading at around 3.3x, which is slightly on the higher side. Investors should book profits on the counter as there could be limited upside for the stock from here on.